Trump Criticized for Position on ZTE Ahead of Trade Talks

President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!

The threat to ZTE’s existence posed by the export ban carries weight. In addition to being a major domestic employer, ZTE plays an important role in China’s 5G mobile development plans, and is heavily involved in implementing the Belt and Road Initiative. The Chinese government had interceded, without success, on behalf of ZTE during bilateral trade negotiations in early May, in a sign of how important policymakers view the company. [Source]

Tech supply chains are so intertwined these days that just about every product that ZTE makes has some American components or software in it — think microchips, modems and Google’s Android operating system. So if ZTE sells a smartphone to North Korea, it might also be selling a Qualcomm chip inside that phone. That’s illegal under American sanctions that prohibit the sale of United States tech to embargoed countries.

When the Commerce Department released its findings against ZTE in 2016, it took the rare step of disclosing evidence of the company’s guilt. One document, signed by several senior ZTE executives, cautioned that American export laws were a risk because the company was selling to “all five major embargoed countries — Iran, Sudan, North Korea, Syria and Cuba.”

A second company document featured flow charts for best practices to circumvent American sanctions. Last year, ZTE acknowledged its guilt and paid a $1.19 billion fine.

[…] Last month, officials said ZTE had violated its agreement with the United States because it didn’t punish senior management for having violated the sanctions. Instead, the Commerce Department said, ZTE paid them bonuses and lied about it. As punishment, the department forbade American technology companies from selling their products to ZTE for seven years. [Source]

The day after his first tweet, Trump attempted to justify his decision, responding to the backlash:

ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.

This is not the first time ZTE has been reprimanded by the U.S.. In 2012, it and Huawei, the leading Chinese mobile phone manufacturer, were flagged by the US Intelligence Committee for threatening national security. In his Transpacifica newsletter, Graham Webster writes:

The Chinese telecommunications equipment company ZTE, now also a major mobile phone producer, has been in the U.S. government’s crosshairs since at least 2012. That year, the House Intelligence Committee released a report placing ZTE alongside Huawei and concluding that “the risks associated with Huawei’s and ZTE’s provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests” and recommending that both government and private-sector entities should not use Huawei or ZTE in their networks. The two companies, the report said, “cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems.” [Source]

Senator Marco Rubio raised this issue again in relation to Trump’s recent moves:

Problem with ZTE isn’t jobs & trade, it’s national security & espionage. Any telecomm firm in #China can be forced to act as tool of Chinese espionage without any court order or any other review process. We are crazy to allow them to operate in U.S. without tighter restrictions https://t.co/AXtTDgufc9